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Orthogonal Trading has defaulted on $36 million of loans on crypto lending protocol Maple Finance after the investing firm’s funds became tied up on bankrupt exchange FTX.  

The default at one of Maple Finance’s key ecosystem players affects some 30% of active loans on the protocol. In response, Maple Finance has severed ties with Orthogonal Trading, the parent entity that runs both a crypto hedge fund and a credit business, according to a statement. It is removing Orthogonal Trading as a borrower on the Maple Finance platform, while removing Orthogonal Credit as a delegate and shutting down its own lending pools.

Orthogonal Trading didn’t respond to multiple requests for comment. 

The majority of the defaults — some $31 million — are in the M11 USDC pool, run by a separate company called Maven 11, according to a Maple Finance spokesperson. This will lead to a roughly 80% hit for the remaining investors in that pool. The remaining $5 million is in Maven’s M11 WETH pool — a 38% hit. Other pools are not impacted.

Maple Finance expects to recover $2.5 million to be used to reduce the damage, according to a Maple Finance spokesperson. This will come from the pool cover — used in case of defaults — and fees accrued by Orthogonal that remain on the platform. Maven, specifically M11 Credit, is considering legal action against Orthogonal in the hope of recovering any funds.

Shocked and disappointed

Maple Finance Founder Sid Powell said he was shocked and disappointed by the incident. He acknowledged that there needs to be more stringent due diligence when it comes to undercollateralized lending and said the platform may look to introduce partially collateralized loans.

Powell highlighted that the protocol locks the funds for each pool in separate smart contracts, meaning that they’re not co-mingled. As a result, the losses were limited to each affected pool — contrasting the incident to FTX’s collapse, where Alameda Research’s losses impacted FTX’s customers.

During November, Orthogonal Trading told Maple Finance it only had minor exposure to collapsed crypto exchange FTX, according to Powell. Yet on Dec. 3, the trading firm said that it was defaulting on its loans because it had a lot more money stuck on FTX. 

Maven 11 stated that Orthogonal Trading had said multiple times during November that it only had $2.5 million of exposure to FTX, which filed for bankruptcy protection last month.

What role did Orthogonal Trading have on Maple Finance?

Maple Finance is a decentralized protocol that enables institutional investors to access undercollateralized loans. Eligible companies are able to create their own lending pools and approved investors can access loans on demand within these pools.

Orthogonal Trading interacted with Maple Finance in two ways. Its credit arm ran a $30 million USDC lending pool and operated as a delegate, meaning it processed due diligence for investors applying to access the permissioned protocol. Separately, its trading arm operated as a borrower on the platform, using it to access credit. The trading arm did not access any loans in the pool run by its credit arm.

Maple Finance noted that Orthogonal Trading had a good record up until now. It had taken out a cumulative $850 million in loans since using the platform and had only defaulted on $10 million during this time, in relation to troubled crypto lender Babel Finance. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The team behind Waves is set to launch a DAO governance framework called Power Protocol that will provide the tools for new or existing DAOs to manage their decentralized organizations.

Power Protocol is a new DAO governance architecture that will launch in January 2023, the announcement stated. The Waves team says it is designed to tackle the problems associated with what’s known as simple token governance. This is a framework commonly adopted by DAOs, where governance token holders have voting power that’s used to make decisions within the community.

Simple token governance is inadequate for DAO administration, stated Waves Founder Sasha Ivanov. Ivanov stated that the model allowed entities with large governance token holdings to sway DAO votes. He added that this was possible because of the lack of incentives and punishments within the simple token governance model.

“Without sufficient accountability built into governance models, bad actors and those who wish to disrupt the decision making process have no deterrent and will keep on gaming the system,” Ivanov stated.

Power Protocol addresses these shortcomings by adding accountability and transparency into the DAO governance architecture, the Waves team stated. This new model combines community-driven key performance indicators with financial rewards or punishments. Good behavior is rewarded with tokens, while bad actions can lead to penalties like vote slashing, where a portion of a user’s governance tokens are reduced and potentially destroyed.

Power Protocol will launch with an airdrop of the system’s native token called POWER. The protocol’s community will decide on the eligibility criteria for the airdrop. Waves’ Power DAO will also be the first DAO to utilize the Power Protocol upon its launch.

Simple token governance has come under criticism in the past. One notable example was when Maker Founder Rune Christensen used his influence to sway a governance vote on MakerDAO to break the organization into smaller DAOs. Ethereum creator Vitalik Buterin has also criticized this model and said he wants to see improvements in decentralized governance.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Regulated crypto bank SEBA Bank and digital asset financial services group HashKey have formed a strategic partnership focused on accelerating the institutional adoption of digital assets in Switzerland and Hong Kong.

Specifically, HashKey will become SEBA Bank’s preferred digital asset trading and market development partner in Hong Kong, according to a press release. SEBA Bank, meanwhile, will become HashKey’s banking partner. The collaboration has been formalized through a Memorandum of Understanding.

The partnership between the two companies is firmly focused on providing institutional and professional investors with the ability to gain exposure to digital assets and their broader ecosystem in a regulated and compliant fashion.

“With a supportive regulatory framework, Hong Kong is a leading jurisdiction globally in the licensing provision of crypto products and services,” Franz Bergmueller, group CEO of SEBA Bank, said. “It is important that the SEBA group becomes part of this ecosystem as a trusted, secure and transparent counterparty in this regulated crypto environment.”

The Switzerland-headquartered SEBA Bank expanded into Hong Kong with a new office at the end of November. Earlier in November, HashKey obtained full licensing to provide crypto asset trading services from Hong Kong’s Securities and Futures Commission.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Circle ended its deal to merge with SPAC Concord Acquisition Corp. 

“Circle plays a key role in the blockchain’s disruption of financial services,” said Bob Diamond, chairman of Concord Acquisition Corp. “I remain confident in Circle’s regulatory-first approach to building trust and transparency in the financial industry, which has never been more important, and I will continue being an advocate for the company as it continues to grow.”

This is a developing story and will be updated.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

In light of FTX’s collapse, activities of off-shore crypto companies operating in the EU are under a microscope for the bloc’s regulators.

The European Securities and Markets Authority is responsible for establishing implementation details on the Markets in Crypto-Assets (MiCA) regulation, which is expected to be enacted in 2024 at the earliest. 

All member states will have the power to “bring down advertisements and websites for unauthorized crypto venues,” said Jan Ceyssens, head of digital finance in the European Commission, at an event in London. “Once MiCA will be there […] authorities will track down those who may still be active but not have the authorization.”

“We will have common ESMA guidelines which will indicate what is reverse solicitation as opposed to what is covered by the rules,” Ceyssens added, referring to a technique that enables off-shore companies to continue accessing the EU market, even without a license. 

The issue of reverse solicitation surfaced in last week’s FTX hearing at the European Parliament. Steffen Kern, head of the risk analysis and economics department at ESMA, said that reverse solicitation is a “particularly pronounced problem” in crypto and is a matter of concern for the regulator. 

“This market is by and large an offshore market,” Kern added. “In many cases, we don’t even know in which jurisdiction the assets are located, which doesn’t make things any easier.” Kern also noted that players outside the EU are expected to continue playing a dominant crypto-market role. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Crypto exchange KuCoin is engaging auditor Mazars to verify its proof of reserves in a third-party factual findings report.

The firm will report on whether KuCoin’s in-scope assets are collateralized, according to an announcement on KuCoin’s official blog. Mazars aims to provide information showing KuCoin’s reserves and customer liability. This will include margin and other accounts and will be focused on bitcoin, ether and the two stablecoins USDT and USDC.

“This move is the next step in our efforts to provide transparency on our users’ funds, highlighting our commitment to transparency and strengthening industry trust,” KuCoin CEO Johnny Lyu in an announcement. “I always say that KuCoin is a People’s Exchange where we place the safety and security of users’ funds as our top priority,” he added on Twitter.

The factual findings report is expected to be published in a few weeks.

KuCoin isn’t exactly early in its efforts to provide further transparency into its operations. Industry-wide, centralized exchanges have been rushing to verify their proofs of reserves following the high-profile collapses of the once-leading crypto exchange FTX and its associated trading firm Alameda Research.

Crypto exchange Bitfinex published details of its reserves in the first half of November while rival Binance put out its own proof-of-reserves system, starting with bitcoin, near the end of November. Most recently, crypto derivatives exchange Bitmex began providing users with the ability to self-verify their liabilities in its total liability balance sheet.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Australian crypto exchange Swyftx has fired 90 employees in its second round of layoffs in four months.

“Swyftx has no direct exposure to FTX, but we are not immune to the fallout it has caused in the crypto markets,” co-founder and CEO Alex Harper said in a note to employees on Monday.

The laid-off staff reportedly translates to around 35% of the company’s workforce.

The second round of redundancies comes four months after Swyftx let go of 74 employees in August. Commenting on the latest cuts, Harper said that Swyftx has to “prepare in advance for a worst-case scenario of further significant drops in global trade volumes during H1 next year and the potential for more black swan-type events.”

Founded in 2018, Swyftx claims to have more than 630,000 customers. In June, Swyftx agreed to merge with local investing platform Superhero to create a $1.5 billion player with 800,000 customers. Swyftx is now open to raising funds in the currently challenging market conditions.

“I know some of you have asked about our plans to raise funds. I do need to say that we’d be taking this action irrespective of any potential growth equity raise,” said Harper. “Every tech business in the world right now is scrutinizing their costs and Swyftx is no different.”

The job cuts come amid the so-called crypto winter. Last week, Singapore-based crypto exchange Bybit announced the second round of layoffs. In recent weeks and months, several exchanges have announced job cuts, including Coinbase, Kraken and Bitso.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Coca-Cola is releasing a set of FIFA World Cup NFTs based on heatmaps of the games played. 

The NFTs will be developed and hosted on Crypto.com’s NFT platform by GMUNK, a digital artist who previously worked with Nike, DoorDash and musician Grimes. 

The 10,000 NFTs were generated by tracking the in-game movements of players in FIFA World Cup matches. These items will be available to fans who sign up for a Crypto.com NFT platform account.

This is the latest big corporate move to capitalize on World Cup fever via web3. BetDEX, a sports betting exchange built on the blockchain, opened on the Solana mainnet on Nov. 17. The exchange removed fees for bets placed on world cup matches. 

Meanwhile, exchange giant Binance roped in football legend Cristiano R0naldo with his NFT collection. The nonfungible tokens entitle holders to different perks — mystery boxes, entry into giveaways and a personal message from Ronaldo himself. 

Budweiser also moved to launch an NFT collection that features live scoreboards for the tournament.

FIFA’s push, built on Algorand, is set to include an NFT collection of notable moments, art and imagery from the World Cup and Women’s World Cup, according to the organization. The project is akin to NFT sports collectibles, like the basketball-focused NBA Top Shot.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Twitter may be taking more decisive strides toward integrating crypto payments — and, perhaps, a native coin.

Security researcher Jane Manchun Wong extracted code for a vector image depicting a “Twitter Coin,” which she shared in a now-deleted tweet. Wong also shared an image of a “Coins” section within Twitter’s “Tips” feature.

The code was extracted from a recent version of the Twitter Web App, Wong told The Block. The icon of Twitter Coin may be related to the crypto-integrated tipping feature Twitter seems to be working on. 

“It isn’t rolled out yet; there is little information out there as to what this is exactly,” Wong said in a message, adding that it remains to be seen if the team is actively working on the feature.

After communicating on LinkedIn, Wong’s social media profiles on LinkedIn and Twitter became no longer available.

Meanwhile, Twitter’s newly-enshrined CEO, Elon Musk, reiterated interest in crypto payments in a Twitter Spaces to an audience of two million listeners. 

“It is kind of a no-brainer for Twitter to have payments, both fiat and crypto,” Musk said. The Tesla founder has regularly shared his keen interest in integrating crypto into Twitter.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Episode 121 of Season 4 of The Scoop was recorded remotely with The Block’s Frank Chaparro, and Sam Bankman-Fried, Co-Founder of FTX and Alameda Research.

Listen below, and subscribe to The Scoop on Apple, Spotify, Google Podcasts, Stitcher or wherever you listen to podcasts. Email feedback and revision requests can be sent to podcast@theblockcrypto.com.

In this episode of The Scoop, Sam Bankman-Fried describes how a legacy payment system linked FTX’s future to Alameda Research’s fate, and explores why regulators and auditors alike failed to discover this relationship.

According to Bankman-Fried, many FTX customers would fund their accounts via direct wire transfers to Alameda Research bank accounts:

“What that flow I think looked like was basically: Bob wires $100 straight to Alameda Research, and then Alameda effectively ledger transfers $100 to Bob on FTX.”

SBF has claimed that wired customer funds contributed to over half of Alameda’s position on FTX, likely totaling over $5 billion, as reported by the WSJ.

In hindsight, SBF says a “reasonably responsible” way of managing direct wire transfers would have been only debiting Alameda’s primary FTX account. In practice, however, wired customer funds were being credited from an Alameda stub account that SBF says “was specifically meant to be a ledger for wire transfers.”

When pressed on how regulators and auditors failed to uncover the extent of Alameda’s relationship to FTX, SBF alleged that customer positions — including Alameda’s — were not part of FTX’s balance sheet:

“This was effectively a customer negative position, and many customers had negative positions open on FTX… Those were not part of FTX’s assets or liabilities, they were customer assets and liabilities, and so FTX’s financials were not directly impacted by this.”

During this episode, Chaparro and Bankman-Fried also discuss:

• Why top executives were extended large personal lines of credit
• If a BlockFi loan was used to purchase Robinhood equity
• Whether or not FTX effectively contributed to charity

This episode is brought to you by our sponsors Tron, Ledn, Athletic Greens

About Tron
Founded in 2013, Huobi Global is one of the largest virtual asset exchanges in the world. Huobi Global serves millions of users across international markets. Since its establishment, Huobi Global has committed to providing first class virtual asset investment services. Huobi Global’s robust infrastructure, product innovation and capital strength provides a truly customer-centric and secure trading environment to help our international users to achieve their investment objectives. Please refer to Huobi’s official website for more information: huobi.com.

About Ledn
Ledn was founded on the unshakeable conviction that digital assets have the power to democratize access to the global economy. We help you to experience the real life benefits of your Bitcoin without having to sell it. Start a savings account, take out a loan, or double your Bitcoin. For more information visit Ledn.io

About Athletic Greens
Build a Foundation for Better Health. It’s time to reclaim your health and arm your immune system with convenient, daily nutrition! Fill nutrient gaps, promote gut health, and support whole-body vitality with AG1. One daily serving delivers a potent blend of 9 health products—a multivitamin, minerals, probiotics, adaptogens and more—working together to help you feel like your healthiest self. For more information visit AthleticGreens.com/Scoop

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.